tasty bits for your iPhone

Fuck the VCs

When I read about Mike Lee’s firing from Tapulous, it made me angry. Angry, not because I feel for Mike… he’s a big boy and I’m sure he’ll be fine. Angry because what we’re about to experience in the iPhone world is going to be a bubble along the lines of the one in the late 90s / early 2000s.

The vultures are out and and they taste blood. The iPhone’s one of the hottest things around right now and there’s little sign of its popularity letting up anytime soon. And the venture capitalists want in… badly. The fact that the iFund™ exists is overwhelming evidence of this.

Ever since my post discussing our sales stats we’ve gotten our share of VCs trying to court us. They desperately want a piece of the action and they’re pounding the pavement with full force.

Now don’t get me wrong… I’m all for a free market. If the market accepts the wave of their “free” stuff coming down the line, all with the hopes of getting as many people on board and getting money from their users through ads or whatever, more power to them. Just remember that you’ll pay for it sooner or later. If the market accepts a flood of their crapware, more power to them. But of course, I’m really hoping that the market doesn’t accept any of this.

The Mac has prospered because of quality. Both in terms of Apple themselves and 3rd-parties. The iPhone is at a dangerous point right now. It’s on the verge of becoming commoditized and so is the 3rd-party software on it. And the VCs are right there behind this and will probably drive it if the market lets them.

I can’t count all the times I’ve recently heard the terms “money-grab” and “monetized via advertisements” regarding iPhone apps. This pisses me off because I care about the quality of the things I work on. We’ve gotten a zillion emails regarding the availability of Groceries and although we could rush it out the door, we’re taking our time on it and doing it right. And the same goes for all the apps we’re working on and will create in the future.

The VC mentality

Here’s a bit of a dialog I recently had with a VC:

random VC:“How many apps do you expect to have finished by the end of the year?”

me:“Around half a dozen.”

random VC:“What if you could have 100?”

me:“Well, we’re having trouble finding one great programmer now and great designers are also really hard to come across.”

random VC:“We’re in Silicon Valley… you may not be able to find great programmers here but we surely have access to lots of decent ones.”

me:<silence>

And this was just the initial phone call. Imagine if we took funding from one of these firms!? I’m sure we’d be forced to become a churnware factory in no time. We refuse to go down this route.

I almost went the VC path myself in the early 2000s. Thankfully, the deal fell through at virtually the last minute. It left me literally in poverty for a long time because I’d quit my job to start up the company after everything was “locked in place”. But I stuck with it and in the end, I’m glad it worked out the way it did. It left me much stronger for having gone through the adversity.

In a nutshell, VCs will give you just enough money to get the ball barely rolling, but then repeatedly force your hand in later funding rounds (if you even make it that far). They’ll have you by the cojones and you’ll have no choice but to give up more and more of what you’ve built through your blood and sweat. And what’s worse, VCs typically bet on a large group of startups with the expectations that one will hit big (the 1 in 10 guideline).

So what about the ones that don’t make it? Well, the founders may very well care about their creations deeply. But the VCs will be quick to amputate and cauterize. They’ll cut their losses in a heartbeat no matter how this would affect the people who’ve poured their souls into their babies. I’ve known many people who’ve been in this predicament over the years and it’s unfortunate to say the least.

You can make it on your own without VCs

I’m serious. It takes hard work and perseverance. You most likely won’t have a runaway hit like a Koi Pond your first time through. But you’ll gain valuable experience. And you can’t put a price tag on that.

Plain and simple… the more you work at it, the more you’ll learn. And the more likely your chances for success down the line. There’s almost nothing better than the freedom of not having to answer to some suits breathing down your neck and assing-up everything you’ve worked so hard for.

But what about startup costs? Sophia and I started up tap tap tap for a few thousand dollars each out of our personal savings. And we’re not any kind of exception as this post shows. There’s no reason why you’d need more if you’re dedicated to your dream.

Support indies

The way VCs think and act is very dangerous for the whole iPhone platform. My hopes are that the most successful developers that come out of this are truly independent developers and that the market does its best to support them.

Again, fuck the VCs.

tap tap tap is a leading iPhone and iPad app developer and publisher.

We’ve been creating top-notch apps since the App Store first opened. Our apps are used by literally tens of millions of people in all corners of the world. A few of our favorite and most popular apps we’ve created are:

This is such a shame. Tapulous was looking like a great company, with lots of talent. I was looking forward to their next apps, but now I’m not so excited. Glad that Tap Tap Tap is not in the same risk.

Thanks for sharing all this stuff. I make most of my money from graphic design and web development, but I’m trying to move more towards software, so it’s great to read about the experiences of someone that’s been at it longer than I have.

And thanks even more for caring about the work you do—it really shows, and it’s great to come across those rare gems in the App Store.

You’ve got some great points there. Macs have prospered because of quality, especially with some great 3rd party app. The App Store is bringing tons of crap to the iPhone, and the VCs are helping that happen.

I’m impressed by your posts. It is amazing for me - a hopeful iPhone apps entrepreneur - to know something about your experiences. Btw I think that it should also be a great marketing tool

About the iPhone and the VC, I don’t think that you need too much money to develop an app. Therefore there should be not too much room for them. Skilled people will prefer to keep their companies and fund them personally and those will be the one that will emerge.

As the developer of a top 25 iPhone app, I have run into similar experiences as you guys. You don’t need VC money for iPhone apps. I contemplated it at first, and glad I didn’t go that route. The App Store is the perfect platform for indie developers to flourish.

Coming from someone who ran a design firm (1 of 4 partners) for 3 years and have been on my own for the past 6 years, TRUST ME when I say that John hit it on the head with this post. Chances are most of you out there have no need for VC.

VC is a business; a business of making money off of the hard work of others. Don’t get me wrong here, business is business, but lets call it for what it is. VCs or VC companies have money, and offer it as “money to get your business on its feet”. But in the end its just a hook for them to gain control over your talents or ideas.

Are we producing robotics here? Anyone need to purchase 3 large format printers and a laminator? No. One of the great things about being a digital designer is that I dont have to buy major supplies!!! When I comp up a website architecture I don’t need VC so I can go to Lowes and purchase 3,000 2x4 or a ton of concrete. I don’t need to buy 60 rolls of expensive large format paper when I design an iPhone GUI. Neither do you no matter how vast your ideas are. It just takes time and hard work, not money.

What about VC for employees you ask? First off, 1 or 2 people (you and a friend) are more than enough to get 1 product to market in our industry. Second if you are not clever enough set aside some of your profits to hire someone when the need arises then you’re business probably wont last past the first few months so don’t worry about needing to get VC to hire people.

I have see a number of friends and associates lured by the “time-saver” that VC presents itself as. Hire people and get started asap! Bullshit. That money will keep you in exactly the same place you were before you got it, you just have 3 people you don’t know working for you and an office space to put them all in when your home office was doing just fine.

VC is for people who want it all right now, without the patience and hard work, and those people should never be owning their own businesses in the first place cuz they don’t have what it takes to see it all the way.

A VC who gives money to a company that doesnt truly need is is just as bad as all those mortgage companies giving 500,000 mortgage loans to 2 McDonalds employees.

I found the article quite bitter on VCs. Venture capital is certainly not needed to develop 95% of the current iPhone apps. Most are minimalist apps with barely any chance to create a multi-million dollar business.
If you are in the business of creating real applications with business value, which require significant amount of R&D, then you’d better join forces with venture capitalists.
They have supported all major tech company today, from Compaq, YouTube to Twitter. The failure to understand that is the problem, not the venture capital business.

It’s really interesting how recent events have opened the floodgates for people to express concern about this. I’ve felt this way for a long time myself, and just wrote my own post with very similar sentiment. It’s nice to know other iPhone developers are as frustrated with this climate as I am.

This is good advice packaged but packaged in a terribly destructive way. I certainly try and design my startups to work well on bootstrapping or angel money, delaying institutional VC indefinitely. That MO tends to be much better for founder equity and employee returns, user-responsive product design, growing at a speed that is good for the company, etc.

On the other hand, WTF? Take a cold shower or something. The level of anger being displayed here has no place in this discussion or this community. Every market segment has its bad actors, both at the individual and corporate granularities. VC doesn’t have a greater share of bad actors than the ecommerce or gaming sectors. Large-scale, software VC is simply a formerly great business in decline, and there are a lot of good, smart people who haven’t made in VC yet who are worried about their (and their families’) economic futures. It’s not evil — it’s their job and they may not feel they can switch. This is a group of very smart people who are fighting for ever-fewer capital-intensive deals, and it’s getting ugly. Their economics are clear, and the bigger the fund the worse the problem.

Fred Wilson’s been publishing a good series of posts on VC economics. In the latest one [link below], he inadvertently outs one of the main problems with running a VC-backed startup. When your business is doing well, the VCs have have every incentive to push you to take more money you may not need — it’s the only way they can be as profitable as they need to be. Fred’s got a relatively small fund, great empathy with entrepreneurs, and is near the top of the heap for any number of reasons. However, he has that same problem — the interests of the Common Stock held by the founders/employees and the interests of the Preferred Stock held by the VCs is divergent in many, many more cases than the Conventional Wisdom suggests. It’s the reason why the VC asked about 100 iPhone apps, et al.

The software VCs are in a different business than we are, but one that is largely dependent on us. It’s a business that used to overlap with ours heavily but where the overlap is decreasing more quickly than capital could ever leave the sector. That leads to market consolidation, market share fights, and VCs requesting startups perform unnatural acts — all of which are ugly, and none of which are evil.

I hate to think that Tapulous is going to abandon the quality app route (twinkle) for gimmicky twitch games by the dozens. But you’re right: the metrics are all wrong and will lead to a bubble. It’s bursting on the social app side already (and deservedly so).

Is the App Store ecosystem creating a disposable software economy? How can any company hope to properly support so many small applications? My concern is that many of these are thrown out to get the initial spike of revenue from being new, and then are discarded to support limbo.

Perhaps this is simply a reflection of the VC business model itself - create many companies in the hope that one or two are hits/create many software products in the hopes that one or two are hits. They can’t help but mimic what they already feel is working.

The app store itself is currently not the best clearing house for finding quality applications, but I’m sure that someone will step in to fill the void.

Although I can understand that many startups (especially individual iPhone devs) don’t need VC. If you don’t need it then leave it. However it seems like many discussion about VC’s are very black and white. Where in truth it’s not. In many situations it is a good move. The discussion is good for one thing at least and that is that entrepreneurs take a minute to scratch behind the ears and think about what they’re doing. And that IMO is a good thing.

Totally agree about that. I went the VC route a few years back and this was the biggest mistake of my life. They make it look like you’re a looser if you “only” have 1M in revenue as a one/two-person shop. For them it’s Google or nothing. Life is too short for this type of crap.

I agree completely. What in the world do you need big time seed money for? VC always want 50 million in 5 years. It’s just crazy. I released a game on the app store (first time releasing anything actually) and it’s been fantastic. I didn’t get a run away hit, but have been in the top 25. I now have enough banked to start work on the next thing. If you make a focused product that sweats the details and has a good experience you can make it all by your lonesome. I would rather work with a small team, but solo has worked great so far.

Interesting….the title of your entry certainly caught my eye. I recently started a VC fund with a different focus and mission than most. We started this fund with the fact that we did not want to be “vulture capitalists.” We actually will invest in common stock, right alongside our partners, but are investing at levels that are post-angel and pre-professional VC. I’ve had numerous VC attorney’s basically tell me I’m an idiot….we may find out to be if we can’t hit our returns but our theory is much more of that of partner than VC and we just hope to build for the long term and drive value in the companies we partner with. At any rate, interesting to see the discussion as I hope our fresh approach and investment philosophy to venture capital might actually attract some incredibly talented entrepreneurs that want to build lasting and impactful companies. Maybe we just think differently about business relationships here.

Go Indie! You can certainly make it as an indie dev if you keep things simple and focus on quality. However, you do need tenacity. I’ve got an app out on the AppStore and it’s really not doing too bad… lot’s of good user feedback and I’m having a blast with lots of new features etc planned.

If you’re committed to quality and hunger to develop software stay independent and focus on the things that you love.

I feel for you. VCs, especially young hungry one’s have a penchant to get so lusty in the hunt they tend to completely forget about the people they are trying to work with and what their actual goals are.

I’m glad to hear that you’re sticking to your guns and not allowing a major, almost certainly negative influence decide your company’s fate. But really, when people accept VC funding, they need the money and it’s a business decision that they’re willing to make. People fault VC’s like they’d blame credit card companies, pokerstars and fast food for destroying their lives. C’mon!

The truth is never that black & white. Many businesses out there need VC level of cash to hire marketing teams, sales people, customer support folks. The iPhone app business is new, and Apple happens to provide the sole distribution channel. That’s definitely uncommon and not the case for other industries: online travel, real estate, you name it, where you typically have to spend money on marketing to gain serious traction.

Just like indie software developers did well when Windows 95 appeared, they now require significant funding to market their products (eg Skype), so too will the iPhone platform evolve, and it will become increasingly difficult to gain visibility and adoption without significant marketing spend.

If your type of business doesn’t have huge costs, then just say so, no need to fuck anyone. Whilst there are companies willing to loan you money - it’s your responsibility to not borrow if you don’t need it or can’t pay the interest.

Actually, flooding the App Store with hundreds of adequate apps is probably a very good (high profit margin) business. Sure it’s less FUN than making one app you’re really passionate about, but business is supposed to be about making money.

And guess what, someone will take that VC offer, and capitalize on it. It just won’t be you. And once the market gets saturated with VC-supported apps, it’ll become very expensive for you to market yours.

The fact is that VCs have lost their abiity to do early stage deals at scale. My good friend Scott Rafer makes a great point - their behavior is more around the market. VCs are institutional investors - they aren’t a hands on mgt consulting firm. Some firms act like they are mgt consulting firms and that they know better than the founders - stay away from those. My advice on VC firms is to stay away from partners that can’t remember what was discussed at the last board meeting. Then unilateraly run the company from the board. VCs playing entrepreneur is not their job. So stay away from those. My advice for entrepreneurs is try to own >51% of your company for as long as you can. As Scott points out that might be through a series b round. My goals for companies is to bootstrap them to own at least 51% after a b-round. The only way to do that is to bootstrap the seed portion to increase the early value. Then taking money on the business and founders terms makes sense.

VCs are not the problem it’s more of the market. Building companies is a team sport and in some cases you need VCs on the team - some cases you don’t.

Scott Rafer has it correct above - certainly try and design my startups to work well on bootstrapping or angel money, delaying institutional VC indefinitely. That MO tends to be much better for founder equity and employee returns, user-responsive product design, growing at a speed that is good for the company, etc.

I guess it comes from living in Wisconsin, where VCs ignore us or talk down to us like a bunch of hick farmers, but I never understood why an iPhone or Mac developer would even think of taking VC funding.

Treat your iPhone company like any other small business (restaurant, shop, etc.). If you really believe in the idea, save up ahead of time and forgo a salary for the 3-4 months it takes to get an application ready and in the store. Restaurant owners don’t take VC funding, they get loans and investment from friends and family. You don’t even have the overhead of a restaurant when starting an iPhone company. You just need enough for a good hosted website (or Amazon EC2 if you want serious scalable backend support for your networked application). Advertising for iPhone and Mac applications is best done through word-of-mouth on leading Mac blogs, which costs you nothing. Set up a good forum on your website for support and budget a little time to answer emails. Find a good local accountant who focuses on small business with reasonable rates.

I speak as both an author of an iPhone application (Molecules) and a co-founder of a startup company (SonoPlot) that, yes, makes robotics and yet has never looked at VC funding. Don’t plan to strike it rich, plan first to support yourself and make a quality product. Keep as much ownership of your company for as you can for as long as you can. The rest will fall into place.

In almost every area of life there exists good and bad. There are good and bad programmers, designers, executives and yes, even VCs.

Re-read your rant, replacing every occurance of “VC” with “Jew”. Despicable, right? Just because you’ve chosen a profession and not a culture doesn’t make your rant any less bigoted.

It’s up to start-ups to use their judgment to find a good VC fit. I’m sure it’s tough — not too many of us have experience turning down offers of cash, after all. But it’s up to you to take responsibility for your own actions instead of generalizing and blaming.

For John Furrier: you are committing the 51% fallacy. It makes no difference if you own 51% of the equity or not; if the VCs own Preferred stock and you own Common, you’re no longer in control of your company. I’m a recovering VC myself… lots of details about this and related VC dynamics at http://www.stephen.fleming.name/raisingcapital

You want to be a professional software developer? What you describe is some netherworld of dream time where you work un-encumbered by economic reality.

If you have decided to run a business based on a developed software product, then guess what - this is what that means. Grow up.

No one cares if you feel creative, empowered, personally satisfied or become a complete actualized human being during your Iphone app development process - they care if you make them money or not. Period. If it makes money because it is cool, great, if it is cool but doesn’t make money, who the fuck cares. If it makes money and isnt cool, great. If it makes money and is of low quality, no problem. If it is very high quality but doesnt make money, you wasted your time.

Nice post and I pretty much agree with it word for word. We’ve had offers over the years to take on investors over at The Iconfactory, but never pulled the trigger. Why? Because we don’t want clueless VC’s calling the shots on our company. A company we built from scratch from the ground up pixel by pixel. I’ve watched ALOT of companies go bye bye in the 12 years we’ve been in business and I expect to see many more.

Mike Lee needs to read this post. From the looks of things, he’s thinking about starting all over again with these guys (just a different set of guys) and that, IMHO, is a mistake.

Before we started working on iPhone apps, we had something very different we had been working on. When it became clear that we would need major server infrastructure to make our original product happen, we basically stopped working on it, because we knew we did not want to do any project where we had to cede control to outside investors.

The iPhone SDK has given us a huge opportunity to develop applications the way we want to, without the outside pressures normally associated with software development. It is not just the emergence of a new platform without entrenched players, but the very nature of the platform itself. iPhone apps are small focused, specialty programs. They do not have the screens and screens of side functionality and features that the desktop demands. The best iPhone apps are all very sharply focused, which is inherently favorable to the small developer.

As Buzz has said, there are definitely days when I would like a second developer, or a dedicated graphic designer, but if the cost of those things is the ability to chart our own path then it seems far to high a price.

VCs are a necessary evil in some areas, and honestly, I have no idea what the economic realities are for software. You actual developers can sort that one out. But I’ll vouch for this: almost without exception, VCs aren’t experts on your field. I used to work for a small food business that was, in its heyday, frankly incredible. Everything was top notch, a labor of love. The owner had a disaster in his personal life and had to sell the business, reasonably healthy and full of promise, to a business consultant friend. The new owner got the VCs on the line, and within a year, had utterly wrecked the restaurant’s reputation. The VCs and the boatload of new managers were floored. They’d done everything by the book; new products, web marketing, flashy advertisements. They’d done everything except keep the product exceptional. Who’d have thought THAT would make a difference?

VCs take risks, but no more than they have to, and art and excellence are—let’s be honest—as risky as they come. Mediocrity is cheap and has a decent risk/benefit.

VC money is not always bad, but as an entrepreneur you need to be in control of the business.

VCs generally are not great entrepreneurs and so the issue is not to take money from anyone that doesn’t let you run the show. That may take talking to a lot of VCs, I did talk to 20 VCs before I lined the deal finally up with angels. Key is to not take money from anybody that thinks they can run the business better than you do (and that includes R&D).

There are good guys out here in SV who understand that. Feel free to e-mail me with questions.

I have done a bunch of startups. Some VC funded, some bootstrapped, some angel funded, etc. The only truth from my perspective is that you need to be clear on your outcome goals when you undertake the entrepreneurial game.

No one path is magically good or innately suckish or evil.

The VC path is, simplistically speaking, the “work to $100M liquidity event or bust” path. There is a lot of baggage good and bad that goes with that. If you are not pursuing a $100M type of opportunity, or that is not your life’s ambition, VC is neither an option nor a goal. It’s that simple.

Many potentially awesome businesses die on the vine for lack of cash or because they got outflanked by well-funded competitors.

Plenty of cash rich, venture funded ventures crap their pants because “only growing to $1M sales next year” was considered unacceptable by the VCs and they chose a different, ultimately unsuccessful, path.

The middle ground, frankly, is to commit to bringing in more of an angel size type of investment, commit to a managed growth plan and live with those partner dynamics.

The bottom line is that anytime you take money from others, it is no longer YOUR business nor should you approach it from that perspective, anymore than you would treat your employees/co-workers/team mates as hired guns.

As others have noted, the goodness of the iPhone platform is that it does not take a lot of money to launch an app. The bad side is that because it doesn’t take a lot of money to launch an app, defensibility will be low, which leads to commoditization, pricing pressures, etc.

Not so simple as saying Fuck VCs. More like choosing between hobby, bootstrap, angel fund or swing for fences, and working to the right answer from there.

As far as I can tell, VC funding is just a glamorous way of going into debt. It’s like taking out a loan at an absurdly high interest rate, with the expectation that you will use your lottery winnings to pay it off.

If I can make a decent living for myself with FatWatch, I’ll consider that success.

SeattleBuzzKill: Clearly, you don’t consider yourself successful unless you make a ton of money. This may shock you, but some people don’t agree with that sentiment. Apparently taptaptap is more interested in making a decent living for its developers while producing products they can be proud of. That’s not a bad thing! Different people have different goals.

No developer is obligated to make someone else money unless they accept outside funding. And then they’re only obligated to try to meet the goals they agreed on—and if those goals aren’t a billion dollar IPO, then there’s no requirement to strive for one. If you haven’t made any such deals, your only obligations are to your customers and to your coworkers—and chances are good that both of those groups want you to make beautiful, well-built products you can be proud of.

Kudos on all points.
And with the App Store, Apple undertakes a lot of the overhead involved in a way that makes $10 and under software potentially profitable (not to mention that a very locked makes piracy a non-issue.)
The worst idea around is that things are free… they are never free. And, for software one uses and loves the user has a big stake in it being profitable for the developer.

“The iPhone is at a dangerous point right now. It’s on the verge of becoming commoditized.”

One of the biggest crock-of-shit statement of 2008. The iPhone is on the verge of becoming mainstream. If you’re worried about commoditisation (hello, Dell!) then you’re about 10 years too early.

Stop panicking about this shit and carry on making software. If you’re privvy to some of the shenanigans that went on behind the scene at Tapulous, why not simply talk about them? If you’re not prepared to, then don’t start the anti-VC FUD in lieu. Sane people know that VCs are capable of being dicks. I’ll sell you a clue: the C stands for Capitalist.

You know, I’ve built my career on funding VC-backed companies (on my 5th now), but I hear you. There is a growing wave of people who realize that VC is not the only way. The costs of getting in market are dropping all the time. As a result the value prop of VCs is losing its power.

I’m sure your readers know this already, but if they’re entrepreneurs and want to do something without VC, they should read this:

So freaking true, its not even funny. We are grown pros and they still talk down to us in the first freaking meeting. After meeting a few of these thugs, you can tell them apart just from few comments like that chat! We’ve kept them out so far and are looking for partners not bankers who want a partner’s role. A banker does not add any value to your use but we should still use them. Key word: USE them!

With these idiots with money in the VC game why is there not a VC that goes after all the fired folks to compete with the idiots. It would be a easy gig.
You would just shut up and sit on the boar and hire the people who are want to leave becuase they cant the idiot anymore

really like your attitude! As a designer I have touched on macs but found them difficult to work with so stayed with PCs. Over the years i have founded a number of business, my most recent has required huge investment and i have found that many vc just love u at first but r far too quick to drop u! My advise is if it sounds too good it probably is! The attitude of perserverence and belief are key to any longterm sustainble sucess. Reading blogs like this is very
refreshing. Keep up the good work.

The system is fucked up to begin with when most revenue models I see these days are nothing more than thinly veiled exit strategies in disguise.

It forces hard working, creative people like you and me to kiss up to people who don’t give a shit about your passion, and therefore are in no real position to offer value even though they can offer the cash you “think” you need.

The problem is the part “we think” we need. We don’t.

There are enough good people to help you achieve what you want if you have a powerful idea and you’re willing to share the rewards. Know your team, check your greed, and manage your ego and then you really can tell VCs to fuck off!

There are enough frustrated and talented voices in this thread alone that can be of benefit to each other with a little pocket change and that should be our focus.

Get good people together for a common cause. Let’s start a FB group and see what the momentum generates. Who’s in?

Turning down a VC call, and turning down a term-sheet from a VC are two different things. VCs calling you is very different from a VC writing you a check. The call is part of their ‘sales’, if you may. They are checking to see if your business is investment worthy by their metrics. Not being investment worthy is not a reflection on your business. It is just a business that does not warrant them spending their money there to hit their revenue goals (IRR).

Any VC who thinks he/she can run your business better than you is a bad VC. VCs bet on the people involved, and if things don’t work, their fiduciary responsibility is to get people who will make it work. Their job is to hire and fire the CEO. Find a CEO who can right the ship if it is failing, or fuel the fire when it is raging.

Let’s not forget - burning passion for your product is a necessary condition, but not a sufficient one for all businesses. If your goal is to churn out a few slick apps and bootstrap that, that is absolutely fine and noble. Please note that it will be very difficult to raise ANY VC into that model, and that choice will not be yours. When VCs figure out that they cannot get the IRR of their choice, they will just not invest. Hence, don’t confuse calls from VCs as a term-sheet from them. Wanting to know if you DO have money, will that change the dynamics is the first test to see if they should dig further.

There are 40k+ Facebook apps. Some great, and some ass. Very few companies behind those apps have raised any real money. But, the top few have, and they have a lion’s share of the traffic - Slide, RockYou, Flixster, Zynga, etc. Yes, those entrepreneurs are giving up control by bringing in the VC, but that is giving them the chance to grow the pie and have a smaller piece of a much larger pie. Guess who is really going to make ANY money, if at all, on these apps? Chances are that the guys behind Slide/RockYou, and their employees will probably make out much better that pretty much all the other apps combined.

Not all investments work out, just as not many apps make it to the top and yield revenues that people can sustain.

There is a difference between an app that supports a lifestyle business, and a tech offering that goes IPO, so get real about your goals, your place in the world, and then figure out if you have the desire and the ability to get there.

By way of disclosure, I’m a tech entrepreneur who has worked and founded VC-backed and non-VC backed companies that have succeeded and failed. VCs are another part of the equation. You have to know how to leverage them for what’s best for you, because they are not there to tell you how to do that. They are there to give you fuel for your fire, and point you to people that they meet, since they meet 100s of companies every week, while you are busy working on your one big idea.

VC-bashing on this thread just reflects a naivety not befitting the creators of slick software, which is the harder piece of the equation, IMHO.

@ Art
I disagree with your view on the purpose of a business. A business provides a product and/or service, generally in exchange for money. While earning money is obviously very important to keep a viable company running, it should not be the principle reason for existing — unless your business happens to be a financial institution, like a bank.

————————————————-
I believe that a lot of iPhone developers want to see high quality applications, not a bunch of half-cooked “me too” products, which just forces a potential customer to have to wade through the muck to find what they are looking for. Hopefully, though, things will start sifting themselves out, where applications with dedicated support will rise up. I just cannot imagine a company trying to shovel out as many mini-apps as possible to be able to properly support and nurture each of those products without allowing them to languish.

————————————————-
I can see a point where taking outside investments (bank, angel funds, VC, etc.) makes sense, especially if you will need some decent capital to get off the ground, but for some businesses, it just doesn’t make sense for either side.

Wow. Sure, abandon the quality developer search, and just start hiring a bunch of mediocre ones instead. What could possibly go wrong?

Great post. I’ve worked in PR for a long time with a bunch of different start-ups, and seen most of them flame out. To be fair, I have witnessed some VCs who have been incredibly helpful (from new hires, to customer leads, to actual *quality* board meetings).

But there sure seem to be many more who:

* are happy to waste the founder(s)’ time with all sorts of ridiculous information requests about stuff that isn’t even material to the main business priorities at that time

* won’t allow their portfolio company to be / sell what it really is (but makes them chase some pie in the sky hallucination to justify their valuation)

I can’t speak to the cut throat financing stuff, never having been through the process. But what I saw (and why I am pursuing my start-up w/ out VC dollars) is that in order to get VC funding, you have to carve out a very substantial part of your time / skill set to “being good at working with VCs.” It has to be a big (I’d guess at LEAST 25%) chunk of your energies throughout the life of your business. And you have to ask yourself whether you’d prefer to spend all of your time building and selling a quality product (while completely undercapitalized) … or whether you’d like to spend part of your time on the product and sales (and have a nice cushion, but a ton of distractions).

I’m sure there are VCs out there who would be a perfect fit for me. But if I’m going to chase needles in haystacks, I’d rather apply that time to the original dream I had for the product and how I want to make life better for the customers I’m going to try to serve.

You don’t have to suck the VC cock, much less fuck them. That’s a business decision made by company founders. Surely people know what they’re getting into bed with, if they take the VC route?

You get good ones and bad ones, but know that all VCs need to invest (fees), need to seen to be investing (kudos, glory, acclaim, investment), and for them it is a numbers game… the one in 10 that generates 100-fold ROI and pays for the nine deadpool suckers.

Like much of what’s going on in Web 2.0, the iPhone world is patently NOT going to be a bubble since there is very little appetite to IPO the bigger tech ‘startups’, much less the boutique mobile app operators. No liquidity, not much hope of a bubble.

A ‘bubble’ in this context is *purely speculative*, and right now we’re mainly looking at hopeful exits (synergy buyouts and whatnot) rather than definite, inflationary IPOs. So we’re looking at a one-buyer scenario (highly illiquid), not dozens of pre-IPO fund managers and many thousands of retail shareholders being waltzed up the garden path, a la 1999-2001.

Respect to the bootstrappers. And if you need the VC dough to scale or accelerate growth / development then keep your eyes wide open, and don’t bitch too much if things go wrong. It’s simple: if you want to retain control, don’t hand over vast swathes of equity to third parties.

In my many years of experience working for startups, I’ve not seen a single VC experience that didn’t negatively impact the company. People think VCs provide money, but they also force the company to do things that are bad for it. One forced us to spend half our investment on hardware and software that didn’t work, setting us back a year.

Another forced the company to shut down its consulting business— which was paying the bills and underwriting our development— so we could “focus”. Of course this made the company financially very vulnerable, and then they delayed funding and upped the terms to be more in their favor.

Further, VCs think they know where the market is going, but they actually don’t. They will push you in the direction that fits the latest fad.

When YouTube got bought, everyone was pushed into being another YouTube. But at that point, its already too late.

Finally, I’ve never worked for a VC backed startup where the CEO was not spending %90 of this time looking for additional funding, coddling VC partners, running around and wasting time at their behest, etc.

The reason to reject VC funding is that there is no need for it— the Appstore eliminates the infrastructure needs for iPhone apps, and thus your costs are low and a decent bit of initial effort should underwrite further development and marketing costs.

I think people have so much animosity towards VCs because they are portrayed in a way that doesn’t reflect the reality. And, unfortunately, there are many people who think that getting VC funding is akin to “success”.